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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K

(Check One)

[X]    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For The Fiscal Year Ended June 27, 2004

[ ]     TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ___ to ___

Commission File Number:000-22639

CHAMPPS ENTERTAINMENT, INC.
(Exact name of registrant as specified in its charter)

303-804-1333
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12 (b) of the Act:
None

Securities registered pursuant to Section 12 (g) of the Act:
Common Stock, par value $.01 per share

          Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days. YES [X] NO [ ]

          Indicate by check mark if disclosure of delinquent filers, pursuant to Item 405 of Resolution S-K is not contained herein, and will not be contained to the best of the registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of the Form 10-K: [X]

          Indicate by check mark if the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act): YES [X] NO [ ]

           The aggregate market value of Common Stock held by non-affiliates of the Registrant as of September 1, 2004, based on the closing price of the Common Stock as reported by the Nasdaq National Market on September 1, 2004 of $8.34 per share, was $74,372,042. Solely for purposes of this computation, shares held by all officers, directors and 10% or more beneficial owners of the registrant have been excluded. Such exclusion should not be deemed a determination or an admission that such officers, directors or 10% or more beneficial owners are, in fact, affiliates of the registrant.

           Number of shares of Common Stock, $.01 par value, outstanding at August 31, 2004: 12,821,423

DOCUMENTS INCORPORATED BY REFERENCE

           Certain portions of the Company’s definitive proxy statement to be used in connection with its 2004 Annual Meeting of Stockholders and to be filed within 120 days of June 27, 2004 are incorporated by reference into Part III, Items 10-14, of this report on Form 10-K.

           Our annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K, and any amendments to the reports will be provided without charge upon written request addressed to: Investor Relations, Champps Entertainment, Inc., 10375 Park Meadows Drive, Suite 560, Littleton, Colorado 80124 and will also be available on our web site at www.champps.com under the heading "Investor Relations," as soon as reasonably practicable after we electronically file such material with, or furnish it to, the Securities and Exchange Commission. Our Code of Business Conduct and Ethics is available on our website under the heading "The Company."

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FORM 10-K INDEX

PART I

PART II

PART III

PART IV

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FORWARD-LOOKING STATEMENTS

           This Annual Report on Form 10-K and the documents incorporated by reference into the Annual Report on Form 10-K include forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. We use words such as “may,” “believe,” “estimate,” “expect,” “plan,” “intend,” “project,” “anticipate” and similar expressions to identify forward-looking statements. We have based these forward-looking statements on our current expectations and projections about future events, activities or developments. Our actual results could differ materially from those discussed in or implied by these forward-looking statements. Forward-looking statements include, without limitations, statements relating to, among other things:

           These forward-looking statements are subject to numerous risks, uncertainties and assumptions about us, including the factors described under “Item 1. Business — Risk Factors.” The forward-looking events we discuss in this Annual Report on Form 10-K might not occur in light of these risks, uncertainties and assumptions. We undertake no obligation and disclaim any obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Readers are cautioned that any such forward-looking statements are not guarantees of future performance and involve risks and uncertainties, and, therefore, readers should not place undue reliance on these forward-looking statements.

           Unless otherwise provided in this Annual Report on Form 10-K, references to “the Company,” “Champps,” “we,” “us” and “our” refer to Champps Entertainment, Inc. and our consolidated subsidiaries. Our fiscal years ended June 27, 2004, June 29, 2003 and June 30, 2002 are referred to as fiscal 2004, 2003 and 2002, respectively. Fiscal 2004, 2003 and 2002 each contained 52 weeks.

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PART I

Item 1.           Business.

Overview

           Champps offers an energetic, upscale casual dining experience with uncompromising service and an extensive menu of freshly prepared items, set in a comfortable atmosphere that promotes social interaction among our guests. As of September 1, 2004, we owned and operated 48 restaurants in 18 states and had 12 additional restaurants operating under franchise or license agreements in five states under the names Champps Americana, Champps Restaurant and Champps Restaurant and Bar. We operate and franchise in a total of 22 states. Our menu is comprised of approximately 90 items, primarily made from scratch on the premises. We typically include a selection of 15 appetizers, 11 main plate salads, 30 high-end sandwiches, specialty burgers and wraps and 26 entrée selections, along with an additional five to eight regularly changing specials. Our menu selection includes not only traditional American favorites such as Champp’s Baby Back Ribs and Grilled Salmon, but also a variety of ethnic cuisine such as our Mongolian Egg Rolls and Shanghai Steamer. This diversity is designed to provide our guests with appropriate choices to meet their dining preference throughout our four distinct day-parts: lunch, after-work, dinner and late night. We believe that our enticing offerings and generous portions, combined with an average check per dining room guest of approximately $13.27 in fiscal 2004, excluding alcoholic beverages, offer our guests exceptional value.

           Our restaurants are designed to create an engaging and socially interactive dining experience. Through the use of multiple levels and other design elements such as ceramic Italian style tile, slate style floors and extensive wood accents, we are able to create a variety of dining atmospheres to satisfy a wide range of diners including families with children, business professionals, couples and singles, as well as sports fans of all ages. Our restaurants range in size from approximately 7,500 to nearly 12,100 square feet and seat 217 to 360 guests. We position multiple video walls and large televisions strategically throughout each restaurant to create an energetic and participatory dining experience. Our bar area, which is located away from the main dining area, creates a focal gathering point for our guests to socialize. We offer music, television broadcasts and special promotional events to increase guest traffic and promote repeat visits. During fiscal 2004, the average unit sales of our restaurants opened for the entire 12 months was approximately $4.7 million, which is among the highest in the casual dining industry.

           We locate our restaurants in areas that have a combination of commercial office space, residential housing and high traffic areas such as shopping malls or multi-screen movie theaters to attract guests during all of our day-parts. Our restaurants principally rely on frequent visits and loyalty from our guests who work, reside or shop nearby, rather than tourist traffic. Typically, our restaurants are located within large metropolitan areas that draw fan interest in professional and collegiate sport teams to allow us to promote the broadcasting of these sporting events in our restaurants.

           We opened seven restaurants in fiscal 2004. We expect to open six restaurants in fiscal 2005 primarily by expanding our presence in existing markets. We have increased our number of company-owned restaurants from 18 in fiscal 1999 to 48 restaurants in fiscal 2004, representing a compounded annual growth rate of 27.8%. We believe that the flexibility of our day-part model, the diversity and quality of our freshly prepared menu items, our unique entertainment and excellent service have created an attractive, high sales volume restaurant model that provides us with considerable growth opportunities to develop our brand nationwide.

           Our financial results for the year ended June 27, 2004 included:

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Business strategy

           Our objectives are to build our brand awareness and guest loyalty and provide our guests with exceptional food, uncompromising service and an exciting ambiance during each of our four day-parts. To achieve our objectives, we have developed the following strategies:

           Offer a comprehensive menu featuring enticing foods and beverages. We offer an extensive and varied menu in each of our four day-parts. Our menu is designed to suit a wide variety of dining occasions that broadens our consumer appeal and keeps the menu fresh for our frequent diners. In contrast to many competing restaurant operations, substantially all of our menu items are prepared on the premises from scratch using high quality, fresh ingredients and proprietary recipes. Champps is recognized by our guests for providing exceptional value by offering generous food portions at moderate prices. Our sophisticated, full service bar offers approximately 18 selections of wine, 20 domestic and imported bottled and draft beers, as well as premium liquor and specialty drinks. For fiscal 2004, sales of alcoholic beverages represented approximately 28.2% of our total food and beverage sales.

           Provide service that “WOWs” our guests. We strive to personalize the dining experiences of our guests by instilling both high standards and a sense of urgency among our associates to exceed each guest’s dining expectations. We position associates to greet guests when they enter our restaurants and train our managers to interact with guests. We also encourage our bartenders to introduce themselves to each patron at the bar, and our servers typically are responsible for no more than three to four tables at a time. Our entire staff is dedicated to executing our standard of delivering orders within 12 minutes of being placed. We encourage a strong, team-oriented atmosphere among our associates that we believe creates uncompromising guest service and a sense of pride in the Champps brand.

           Create a fun, high energy, social dining and entertainment experience. Our distinct dining experience features extensive entertainment and socially interactive activities designed to encourage guest frequency and attract guests outside of normal peak dining hours. For example, we increase guest traffic in our late night day-part by encouraging guest participation in a variety of promotional events we offer, such as the “Big Bike Give-Away” and Karaoke. Our special design elements, multiple dining levels, patio areas and sizable bar area allow us to comfortably serve guests seeking different dining experiences and further promote frequent visits. Our two to three video walls and ten to 12 televisions located throughout our restaurants, as well as our state-of-the-art audio systems, enable us to provide an exciting and socially interactive environment to view major sporting events. Our open display kitchens afford our guests the opportunity to observe our kitchen staff in action.

           Capitalize on our proven multiple day-part model. Champps restaurants generally are open seven days a week from 11:00 a.m. to 1:00 a.m. We serve our guests during lunch, after work, during dinner and after dinner during our late night periods. For fiscal 2004, we generated 33.9% of our sales during lunch, 60.7% after work and during dinner and 5.4% during late night, demonstrating the versatility of our concept and our ability to serve guests for a variety of occasions such as professional lunches and everyday dining, as well as social and special occasions. We adjust our ambiance throughout the day by changing the lighting and choice of programming for each day-part. According to a market research study of over 1,100 of our guests completed during fiscal 2002, on average our guests visit Champps 2.7 times per month while 10.0% of our guests visit our restaurants on an average of 11 times per month. By operating in multiple day-parts, we are able to maximize revenue and leverage both development and operating costs. We believe the versatility of our operating strategy has allowed us to build strong guest loyalty with a high percentage of repeat business.

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           Deliver strong unit economics. We believe our company-owned restaurants provide strong unit level economics. Our company-owned restaurants open throughout fiscal 2004 generated average restaurant sales of approximately $4.7 million and restaurant level operating cash flows of approximately $748,000, or 15.9% of average annual restaurant sales. The average cash investment cost net of tenant improvement allowances received from landlords for all of our restaurants opened since the beginning of fiscal 2001 was approximately $1.8 million, excluding pre-opening expense, which averaged approximately $0.4 million per restaurant. Although the reporting of restaurant level operating cash flows is a non-GAAP measure of our performance, we believe it provides investors with a useful industry comparative and is a measure used by management to assess the financial performance of our Company. We believe inclusion of restaurant level operating cash flows will assist investors to better understand the economic model of Champps and assist in making an informed investment decision. Reconciliation of restaurant operating cash flows to the most comparable GAAP measure, income from operations, is provided in footnote 1 below.

           Build awareness of the Champps brand. We believe that the Champps name has achieved substantial brand recognition among our guests and has become well known within our markets for our high quality, innovative menu items, generous portions, uncompromising service and a fun, engaging dining experience. We have a first time guest program that is intended to strengthen our brand loyalty by educating our first time guests about the Champps concept. In addition, we believe the most effective way to build brand awareness is to consistently deliver a dining experience that exceeds our guests’ expectations.

Growth strategy

           We adhere to a disciplined growth strategy and believe that there are significant opportunities to expand our concept in existing and new markets throughout the United States. The future development of Champps restaurants will be accomplished primarily through the development of company-owned restaurants in existing markets. Opening multiple units in existing markets enables us to leverage costs and gain efficiencies associated with regional supervision, marketing, purchasing and hiring. We believe opening new restaurants in our existing markets reduces the risks involved with opening new restaurants because we better understand the existing competitive conditions, consumer tastes, demographics and discretionary spending patterns. In addition, our ability to hire and train qualified associates is enhanced in markets in which we are well known and we are able to utilize existing associates in new restaurants and capitalize on our brand awareness. We plan to open approximately 80% of our new restaurants in existing markets.

           Our current expansion plans do not include adding new franchisees. Although our existing franchisees do not have the right to open additional restaurants, under certain circumstances we may permit our existing franchisees to open additional restaurants. A new franchised Champps restaurant opened in Des Moines, Iowa in August 2004. Although we have no obligation to do so, in the future we may seek to acquire some or all of our 12 franchised restaurants from our franchisees. This may require additional capital.

(1) Average restaurant level operating cash flow for 2004 in 000's

           Restaurant level operating cash flow is not a measure of financial performance or liquidity under accounting principles generally accepted in the United States of America ("GAAP") and should not be considered in isolation or construed as a substitute for net income or other operations data or cash flow data prepared in accordance with GAAP for purposes of analyzing our profitability or liquidity. Restaurant level operating cash flow, as calculated, may not be comparable to similarly titled measures reported by other companies.

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           In fiscal 2002, fiscal 2003 and fiscal 2004, we opened six, seven and seven new restaurants, respectively. We plan to open six restaurants in fiscal 2005. As of September 1, 2004, we have begun construction on three restaurants that will open in fiscal 2005. In addition, we have identified other sites for our growth objectives for fiscal 2005.

           We believe that our site selection strategy is critical to our success and we devote substantial effort to evaluating each potential site at the highest levels within our organization. Our chief executive officer, chief operating officer, regional vice presidents of operations, and the respective regional directors of operations must approve each restaurant site that is presented by our real estate professional. Our site selection criteria focuses on locating suitable facilities within larger metropolitan areas with an average household income of at least $75,000 and population density in excess of 75,000 within a three mile radius. In addition, site visibility, traffic patterns, accessibility, adequate parking, competitive restaurants, associate availability, proximity to entertainment activities, as well as areas near a combination of commercial office space, residential housing and high traffic areas, influence our site selection criteria. Potential sites are also evaluated by our vice president of construction and development to insure we meet our construction obligations and capital expenditure projections, our legal counsel to insure we negotiate favorable terms in our leases and our chief financial officer to insure we meet our profit and investment return objectives.

Unit level economics and day-part allocation

           Our current restaurants range in size from approximately 7,500 to 12,100 square feet and have approximately 207 to 360 indoor seats and approximately 42 additional patio seats on average. We lease 47 of our restaurants and own one. During fiscal 2004, our base of restaurants opened for the entire 12-month period, generated average sales of approximately $4.7 million and restaurant level operating cash flows, as defined, of approximately $748,000, or 15.9% of restaurant sales. Based on the Company’s average net cash investment to build a restaurant of approximately $1.8 million, our restaurants opened for the entire 12-month period generated a cash-on-cash return of over 40.0%.

           Our current prototype restaurant is approximately 7,800 to 8,800 square feet in size depending on patio configurations and has seating for approximately 250 to 320 guests. The average net cash investment for our restaurants varies depending on whether we lease the restaurant or complete the restaurant through a build-to-suit transaction, the terms of the lease entered into, the amount of tenant improvement allowance we receive and whether we enter into an operating lease for any equipment. The average cash investment to construct a restaurant based on all of our restaurants opened since the beginning of fiscal 2001 was approximately $1.8 million, net of tenant improvement allowances and excluding an average pre-opening expense of $0.4 million.

           Our success in our four distinct day-parts demonstrates the strength of our concept. The following table depicts the dollar amount and percentage of overall company-owned restaurant sales during fiscal 2004 attributable to each of our day-parts. During this period, our food and alcoholic beverage sales as a ratio of total food and beverage sales was 71.8% and 28.2%, respectively. In fiscal 2004, our bar area generated approximately 18.0% of our total restaurant sales, 62.7% of which are generated from 4:00 p.m. to 10:00 p.m., signifying our strong after work and happy hour business. Champps merchandise and other sales totaled $333,000 and were 0.2% of overall sales in fiscal 2004 and are not included below.

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Sales By Day Part—Fiscal 2004(in 000‘s)

Restaurant design and ambiance

           Our restaurants have an ambiance enhanced by a layout that encourages social interaction and promotes a high-energy environment. All of our restaurants have multiple levels that enable us to seat our guests towards a specific location depending upon their dining preferences while also creating an open atmosphere and the ability for guests to have a panoramic view of the entire restaurant. Our restaurants have large bar areas typically located on the first level. The bar’s numerous angles and bends provide our guests with a place to meet and socialize. We place large video walls and additional televisions strategically throughout each restaurant, which together with a state of the art sound system, provide a source of entertainment for our guests. We monitor the selection of our broadcasts, music and volume in each dining area to create the appropriate dining environment. We also use plasma televisions to incorporate the latest technologies and keep our restaurants up to date.

           Our restaurant interiors utilize a combination of dark cherry stained wood and brick throughout the dining area, Italian style ceramic tile in the kitchen and bathrooms, slate style tile in the bar area and noise reducing carpet in the dining room. Our bars are generally stainless steel and we use accented black granite or wood trim at our specially designed hostess stands to enhance our contemporary feel. The majority of our restaurants include an indoor patio area with a large fireplace and several have outdoor patios, all of which provide our guests with multiple settings to choose from. Our display kitchens are presented behind a floor-to-ceiling glass wall to provide a focal point for the dining room. We use a variety of directional lighting and chandeliers to create a warm environment in our dining rooms and bar area.

           The exterior of our restaurants typically employ brick, stone and stucco to create a highly visible restaurant that features a well-lit, large Champps sign and logo. We extensively landscape our restaurants and where appropriate, vary the exterior design to coordinate with the surrounding area. Lighted trees, directional lighting on our buildings and large entries further increase our visual appeal.

Menu

           We offer our guests a comprehensive selection of approximately 90 items, primarily made on the premises from scratch, which typically includes a selection of 15 appetizers, 11 main plate salads, 30 high-end sandwiches, specialty burgers and wraps and 26 entrée selections. Our menu selection includes not only traditional American favorites such as Champp’s Baby Back Ribs and Grilled Salmon, but also a variety of ethnic cuisine such as Mongolian Egg Rolls and Shanghai Steamer. For example, one of our most popular entrees is the Parmesan Crusted Chicken that is created with three large chicken breasts crusted with an Italian herb mix and shredded parmesan cheese before pan frying in olive oil and accompanied by tender angel hair noodles, our freshly prepared traditional marinara sauce and fresh garlic buttered toasted crostini. We continuously experiment with food and beverage items to develop proprietary recipes with high flavor profiles to ensure that our menu is imaginative and exciting to our guests. We also feature five to eight specials that change regularly, allowing us to continually refine our menu offerings and keep our selections fresh for our frequent users. We believe that the broad range of our menu provides multiple dining options during each of our day-parts.

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           We emphasize freshness and quality in our food preparation and focus on maintaining our reputation for creative and high quality menu offerings. Our fresh sauces, salad dressings, batters and mixes are prepared daily in our restaurants using high-quality and fresh ingredients.

           The food items on our menu range from $5.95 to $13.45 for appetizers, $7.95 to $14.45 for burgers and sandwiches, and $7.95 to $21.95 for dinner salads and entrees. For fiscal 2004, our average guest check in our dining room was approximately $13.27, excluding alcoholic beverages. Our sophisticated, full service bar offers approximately 18 selections of wine, most of which are available by the glass, 20 draft and bottled domestic and imported beers, as well as premium liquor and specialty drinks. Sales of alcoholic beverages represented approximately 28.2% of total food and beverage sales during fiscal 2004.

Food preparation and quality control

           We believe our food quality and control standards are among the highest in the industry. Our systems are designed to provide freshly prepared items based on the specifications set by our corporate executive chef and overseen at each of our restaurants by an assistant general manager and up to three management assistants. We invest substantial time in training and testing of our kitchen associates to adhere to our strict standards and preparation guidelines to maintain our quality control. The design of our facilities enables us to ensure food is maintained in accordance with the requirements of the Food and Drug Administration. We audit our sanitary conditions at each restaurant and train all of our management associates regarding safe handling practices of all perishable food products.

Guest loyalty

           We believe our restaurants generate higher than average repeat visits due to our four day-part offerings of lunch, after work, dinner and late night, as well as the increased guest traffic generated from the broadcasting of major sporting events. Based upon a market research study of over 1,100 of our guests completed during fiscal 2002, we determined that on average our guests visit Champps 2.7 times per month as compared to approximately 1.9 visits per month for the casual dining industry, while 10.0% of our guests visit our restaurants on average 11 times per month. The social interaction that is created within our restaurants also provides our guests with a comfortable setting to meet family, friends and co-workers. We rely on frequent visits and loyalty from our guests to generate the high volume of sales in our restaurants.

Marketing and advertising

           Historically, we have relied primarily on guest referrals rather than external marketing initiatives to promote our brand. Within our restaurants we continually promote special events and upcoming entertainment activities as well as special menu items or drinks to drive guest frequency and sales. We have implemented a first time guest program that is intended to strengthen our brand loyalty by educating our first time guests about the Champps concept. During fiscal 2004, 2003 and fiscal 2002, our expenditures for advertising and promotions were less than 1.5% of total restaurant sales.

           Our associates are integral to the success of our in-store marketing strategy. Our hosts introduce our specials to our guests upon seating, and at the end of each dining experience, our wait staff is instructed to inform our guests of upcoming special or promotional events. We communicate special events to our guests with poster stanchions or special displays, as well as table displays. Finally, when exiting our restaurants, the greeters thank each guest for coming to Champps and invite them to come back soon.

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           On occasion, we engage in paid advertising for individual restaurant locations, including newspaper and radio advertisements and have tested cable television advertising in select markets. We utilize a variety of printed marketing materials, including restaurant location brochures, hotel concierge cards, take-out menus and direct and electronic mailings.

Operations

           Restaurant management. As of September 1, 2004, we had ten directors of operations who typically oversee approximately four to six restaurants each and supervises the general managers at each restaurant in their area. Each director of operations reports to one of two regional vice presidents. Due to the complexity of our operations and to ensure our high level of guest service, our restaurant management is divided into three areas, the general manager, front-of-house managers and back-of-house managers, each of whom are supported by additional staff members. Our managers are frequently promoted from within Champps to encourage continuity and opportunities for development, as well as enhance our corporate culture. We compensate our management team through a combination of base salary and bonuses based on achieving established performance levels for revenue, profit and guest service.

           Restaurant associates and service. We believe that our uncompromising service is one of our differentiating factors. Our service is based on a team concept to ensure that guests are made to feel that any associate can help them and that they are never left unattended. To maintain these high standards, we seek to hire and train personnel who believe in our philosophy and are passionate about guest service. We strive to personalize the dining experiences of our guests by instilling both high standards and a sense of urgency among our associates. All associates meet with their managers at two daily pre-shift motivational and informational meetings in which service standards, restaurant promotions, specials and quality control are reviewed. We frequently reward individual and restaurant achievement through several recognition programs intended to build and maintain associate morale. For example, our “Pin Program” rewards and recognizes the efforts of associates with pins that are worn proudly on uniforms to publicly acknowledge their commitment to guest service.

           Training.The restaurant management team is provided with an intensive ten-week training program to ensure they have appropriate knowledge to excel in their position. All members of management are required to receive kitchen training to understand the importance of the food preparation process and how the quality of our menu is a significant driver of repeat guest visits. We also host an annual general managers’ conference focusing on strategic issues in addition to conducting other training classes. This conference also serves as a platform to recognize the general managers who exceeded our expectations.

           We provide all new associates with complete orientation and training for their positions to ensure they are able to meet our high standards and understand our company policies. For servers, we require a minimum of six days training on how to serve our food, the composition and preparation techniques for each menu item, direction on how to treat and serve our guests and ways to promote our business. Our food preparation staff undergoes an intensive five-day hands-on training program for their respective positions, which includes a review of our safety procedures. The training encompasses classroom instruction, on-the-job training programs for each position, and testing of the new associate’s progress at pre-determined stages within the training schedule.

           When we open a new restaurant, we provide an extensive and varied level of training to associates in each position to ensure the smooth and efficient operation of the restaurant from the first day it opens to the public. We believe this training helps provide our guests with a quality dining experience from opening day on. Our training programs enable us to promote existing associates and managers as new restaurants open. We believe that we can support our expansion strategy since we have a large manager base in existing restaurants that can be promoted or transferred to new restaurants, combined with our thorough training programs and hiring of outside personnel.

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Restaurant franchise and licensing agreements

           As of September 1, 2004, we had 12 franchised restaurants that began operations between 1991 and 2004. A new franchised location opened in Des Moines, Iowa in August 2004. The franchises in Duluth, Minnesota and Charlotte, North Carolina were closed by franchisees in July 2002 and July 2004, respectively. Seven of our current franchised restaurants are located in the Minneapolis, Minnesota area. We also have one franchised restaurant in Des Moines, Iowa, Sioux City, South Dakota, Omaha, Nebraska, and two in Milwaukee, Wisconsin. Three franchisees own nine of the 12 franchised restaurants.

           Our revenue from current franchisee agreements represented approximately 0.3% of our revenue in fiscal 2004. The franchisee is responsible for all direct costs involved in the construction and maintenance of their restaurants. We provide menu development and marketing support on a limited basis. Franchisees are required to provide periodic financial reports and annual financial statements to our corporate office for performance measurement and fee calculations. Currently, we are not actively seeking additional franchisees. Although our existing franchisees do not have the right to open additional restaurants, under certain circumstances we may permit our existing franchisees to open additional restaurants. Although we have no obligation to do so, we may seek to acquire one or more of our existing franchised restaurants if they meet our acquisition criteria.

Accounting and management information systems

           We use an automated data processing system and standardized reporting procedures to provide each of our company-owned restaurants with centralized financial and management controls. Our management information system tracks each restaurant’s weekly sales reports, vendor invoices, payroll information and other operating information which is connected to our centralized accounting and management information systems at our corporate headquarters in real time. By having a system where data can be input remotely and controlled centrally, our overhead functions are streamlined and administrative expenses are reduced.

           While we continue to monitor our computer hardware and financial software for potential upgrades, we believe our existing management information systems are sufficient to support our long-term expansion plans.

Purchasing

           We endeavor to obtain high quality menu ingredients and other supplies and services for our operations from reliable sources at competitive prices. We rely on SYSCO Corporation, a national food distributor, as the primary supplier of our food. In August 2003, we entered into a new five-year distribution agreement with SYSCO. By utilizing a distribution company with a national presence, we are able to ensure consistent application of menu specifications throughout the country at a pre-negotiated price. We also periodically enter into selective short-term agreements for the products we use most extensively. This helps us to consistently maintain our product costs. We believe that all essential food and beverage products are available from several qualified suppliers at competitive prices should an alternative source be required.

           To maximize purchasing efficiencies and to provide for the freshest ingredients for our menu items, each restaurant’s management determines the quantities of food and supplies required. Our centralized purchasing staff, under the direction of our chief operating officer, specifies the products to be used at our restaurants, designates the vendors, from whom to purchase these products, and provides suppliers with detailed ingredient specifications.

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Competition

           The restaurant industry is highly competitive. We compete with other national and international restaurant chains as well as local and regional operations. Competition within the industry is based principally on the quality, variety and price of food products served. Changes in consumer preferences, economic conditions, environmental conditions, demographic trends and the location and number of, and type of food served by, competing restaurants could adversely affect our business as could the availability of experienced management and hourly associates. We believe that the flexibility of our multiple day-part model, the diversity and quality of our freshly prepared menu items and our unique entertainment and excellent service have created an attractive, high sales volume restaurant model that provides us with considerable growth opportunities to develop our brand nationwide.

Associates

           As of September 1, 2004, we had approximately 5,400 associates on the Champps team, approximately 418 of which were restaurant management and field support personnel and 44 whom worked at our corporate headquarters. We do not have any collective bargaining agreements. We consider our associate relations to be good.

History

           The original Champps concept began operations in 1984 and grew to eight restaurants by December 1995. In 1996, William H. Baumhauer, chief executive officer and president of DAKA International, Inc. ("DAKA"), a large publicly traded food service management and restaurant company, led DAKA’s purchase of Champps to add to its portfolio of restaurant concepts. As part of a corporate restructuring in 1997, DAKA's food service businesses were spun off and the shareholders retained ownership of the restaurant businesses, which included Champps, Fuddruckers, the Great Bagel & Coffee Company, Casual Dining Ventures and Restaurant Consulting Service. The new company was named Unique Casual Restaurants, Inc. At the end of 1998 and early 1999, Fuddruckers and Restaurant Consulting Services were sold to separate buyers. In June 1999, Unique Casual Restaurants closed Great Bagel & Coffee Company and Casual Dining Ventures and changed its name to Champps Entertainment, Inc.

           Shortly thereafter, Mr. Baumhauer, who had left the DAKA organization in May 1998, was recruited back to Champps as president and chief executive officer. Upon his return, Mr. Baumhauer set in motion a series of strategic initiatives that included hiring a new management team, consolidating our headquarters, improving our operational and financial reporting procedures, standardizing the purchasing process and establishing new associate training and retention practices. As a result of these efforts, our restaurant level operating profit margin increased from 7.6% in 1999 to 10.6% in fiscal 2004. In addition, our income from continuing operations increased from a negative $14.1 million in fiscal 1999 to a positive $6.2 million in fiscal 2004. We have also implemented a disciplined expansion strategy and have added 34 restaurants since Mr. Baumhauer’s return.

Operating locations

           We lease all but one of our restaurants. The leases for our restaurants expire at varying times commencing in 2009. Nearly all of our leases are for fifteen to twenty year terms with renewal options extending our leases from five to twenty additional years. Currently, our leases, with option periods, expire between 2010 and 2041.

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The following table sets forth data regarding our 48 company-operated restaurants at June 27, 2004. All restaurants are leased except the restaurant located in Lombard, Illinois, which the Company owns.

Company-operated restaurants

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Restaurants to open

           As of September 1, 2004, we had begun construction on restaurants located in Cleveland, Ohio and two locations in Philadelphia, Pennsylvania. The Philadelphia restaurants are expected to open in the second quarter of fiscal 2005 while the Cleveland restaurant is expected to open in the third quarter of fiscal 2005. We anticipate opening a total of six restaurants in fiscal 2005.

Franchised restaurants

           As of September 1, 2004, we had 12 franchised restaurants, seven of which are located in the Minneapolis, Minnesota area, two in Milwaukee, Wisconsin, and one in each of Des Moines, Iowa, Sioux City, South Dakota and Omaha, Nebraska. Franchises located in Charlotte, North Carolina and Duluth, Minnesota were closed by franchisees in July 2004 and July 2002, respectively.

Trademarks

           Through our operating subsidiaries, we have registered a number of trademarks and service marks with the United States Patent and Trademark Office and with certain states, including, but not limited to the trade names: “Champ’s,” “Champps,” and “Champps Americana.”

           Pursuant to a Master Agreement dated February 1, 1994, whereby Champps acquired the “Champ’s” and “Champps” service marks, trademarks and trade names, we agreed to pay the seller an annual fee. For fiscal 2004, the maximum fee was equal to the lesser of $322,422 or one-quarter percent (0.25%) of the gross sales of certain Champps restaurants excluding two of our oldest restaurants and we paid the maximum amount payable under this agreement. The maximum fee payable is increased annually by the lesser of the increase in the consumer price index or 4.0%.

Government regulation

           Our business is subject to various federal, state and local laws, including health, sanitation and safety standards, federal and state labor laws, zoning restrictions and state and local licensing. We are also subject to federal and state laws regulating franchise operations and sales, which impose registration and disclosure requirements on franchisors in the offer and sale of franchises or impose substantive standards on the relationship between franchisor and franchisee.

           Our restaurants are subject to state and local licensing and regulation with respect to selling and serving alcoholic beverages. Typically, licenses must be renewed annually and may be revoked or suspended for cause. The failure to receive or retain, or a delay in obtaining, a liquor license in a particular location would adversely affect ours, or a franchisee’s, operation in that location.

           In addition, our restaurants are subject to “dram shop” statutes in certain states, which generally give a person injured by an intoxicated person the right to recover damages from the establishment that has wrongfully served alcoholic beverages to the intoxicated person. We carry liquor liability coverage in the amount of $1.0 million per occurrence subject to an aggregate annual policy limit of $5.0 million, with a $0.25 million deductible per occurrence.

           The Americans with Disabilities Act (the "ADA") prohibits discrimination on the basis of disability in public accommodations and employment. The ADA , which mandates accessibility standards for individuals with physical disabilities, may increase the cost of construction of new restaurants and of remodeling older restaurants.

           We are also subject to the Fair Labor Standards Act, which governs such matters as minimum wages, overtime, and other working conditions. A significant portion of our food service personnel are paid at rates related to federal or state minimum wage rates, and accordingly, increases in any such minimum wage will increase our labor costs.

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Risk factors related to our business

Our growth strategy depends on our ability to open new restaurants, and we may not be able to achieve our planned unit expansion

           Our ability to expand our operations through the opening of new restaurants is important to our future financial success. Since fiscal 1997 through fiscal 2004, we have expanded our operations from 12 company-owned restaurants in nine states to 48 company-owned restaurants in 18 states. We expect to open an additional six restaurants in fiscal 2005. We have experienced delays in restaurant openings from time to time and may experience delays in the future. We cannot guarantee that we will be able to achieve our expansion goals or that new restaurants will be operated profitably. Further, we cannot assure that any restaurant we open will obtain operating results similar to those of our existing restaurants or will not adversely affect the results of other Champps restaurants in the same market. The success of our planned expansion will depend upon numerous factors, many of which are beyond our control, including the following:

           In addition, we may enter new markets in which we have no operating experience. These new markets may have different demographic characteristics, competitive conditions, consumer tastes and discretionary spending patterns than our existing markets, which may cause the new restaurants to be less successful in these new markets than in our existing markets.

           Our growth strategy may strain our management, financial and other resources. For instance, our existing systems and procedures, restaurant management systems, financial controls, information systems, management resources and human resources may be inadequate to support our planned expansion of new restaurants. We may not be able to respond on a timely basis to all of the changing demands that the planned expansion will impose on our infrastructure and other resources.

The inability to develop and construct our restaurants within budget and projected time periods will adversely affect our business and financial condition

           Critical to our success is our ability to construct our restaurants within budget and on a timely basis. Many factors may affect the costs associated with the development and construction of our restaurants, including:

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           If we are unable to develop new restaurants within anticipated budget or time periods, our revenue will not meet our expectations and pre-opening costs may exceed our projections. In addition, returns on our investments may be impaired and the amount of capital available for other new restaurants may not be available.

The failure of our existing or new restaurants to perform as anticipated could adversely affect our business

           As of June 27, 2004, we owned and operated 48 restaurants, seven of which were opened within the preceding 12-month period. The results achieved by these restaurants may not be indicative of longer-term performance or the potential market acceptance of restaurants in other locations. We cannot assure you that any new restaurant we open will have similar operating results to those of prior restaurants. We anticipate that our new restaurants will take at least several months to reach our long term profitability levels due to inefficiencies typically associated with new restaurants.

Because of our small restaurant base, our operating results could be materially and adversely affected by the negative performance of a small number of restaurants

           Due to our small restaurant base, poor operating results at any one or more of our restaurants could materially and adversely affect our business, financial condition, results of operations or cash flows. In addition, we locate our restaurants close to areas that have a combination of commercial office space, residential housing and high traffic areas, such as shopping malls or multi-screen movie theaters. Changes in levels of office occupancy, new or competing real estate development projects, or delays in the development of the projects where we are located may adversely affect the performance of a restaurant. In addition, our operating results achieved to date may not be indicative of our future operating results with a larger number of restaurants.

We may require additional capital to expand our business in accordance with our growth strategy

           Changes in our operating plans, acceleration of our expansion plans through internal growth or acquisitions, lower than anticipated sales, increased expenses or other events may cause us to seek additional debt or equity financing on an accelerated basis. Additional financing may not be available on acceptable terms, or at all, and our failure to raise capital when needed could negatively impact our growth and other plans, as well as our financial condition and results of operations. Additional debt financing, if available, may involve significant cash payment obligations and covenants or financial ratios that restrict our ability to operate or grow our business. See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations – Liquidity and Capital Resources.”

Our franchisees could take actions that could harm our business

           Franchisees are independent operators and are not employed by us. We provided training and support to franchisees, but any number of factors beyond our control may diminish the quality of franchised restaurant operations. Consequently, franchisees may not successfully operate restaurants in a manner consistent with our standards and requirements or may not hire and train qualified managers and other restaurant personnel. If franchisees do not operate in accordance with our standards, our image and reputation may suffer materially and system-wide sales could significantly decline. Also, the presence of franchised restaurants may limit our ability to expand in a desired market.

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Our operations are susceptible to changes in food availability and costs, which could adversely affect our operating results

           Our profitability depends in part on our ability to anticipate and react to changes in food costs. We rely on SYSCO Corporation, a national distributor, as the primary supplier of our food. Any increase in distribution prices or failure of SYSCO to perform could cause our food costs to increase. There also could be a significant short-term disruption in our supply chain if SYSCO failed to meet our distribution requirements or our relationship was terminated. Further, various factors beyond our control, including adverse weather conditions, governmental regulation, production, availability and seasonality may affect our food costs or cause a disruption in our supply. We cannot predict whether we will be able to anticipate and react to changing food costs by adjusting our purchasing practices and menu prices, and a failure to do so could materially and adversely affect our operating results.

Changes in consumer preferences or discretionary consumer spending could negatively impact our results of operations

           Our continued success depends, in part, upon the popularity of the menu items served in the Champps environment and our dining style. For example, the recent popularity of low carbohydrate diets has caused us to modify our menu and add approximately eight "carb consious" items to our menu. Shifts in consumer preferences away from our cuisine or dining style could materially and adversely affect our future profitability. In addition, our success depends to a significant extent on numerous factors affecting discretionary consumer spending, including economic conditions, disposable consumer income and consumer confidence. Adverse changes in these factors could reduce guest traffic or impose practical limits on pricing, either of which could materially and adversely affect our operating results.

Health concerns relating to the consumption of our food products could negatively impact our results of operations

           We are subject to the risk that consumer preferences could be affected by health concerns about the consumption of particular food products. Beef and chicken are the key ingredients in many of our menu items. Negative publicity concerning food quality, illness and injury, publication of government or industry findings concerning food products served by us, or other dietary and health concerns or operating issues stemming from one restaurant or a limited number of restaurants may adversely affect demand for our food and could result in a decrease in guest traffic to our restaurants.

If we lose the services of our president or other key associates, our business could suffer

           Our future success significantly depends on the continued service and performance of William H. Baumhauer, our president and chief executive officer, as well as other key executives. Our future performance will depend on our ability to motivate and retain Mr. Baumhauer and other executive officers and key associates, such as regional directors of operation, restaurant general managers and kitchen managers. Competition for these associates is intense. In May 2003, Mr. Baumhauer’s employment agreement was amended and extended through June 30, 2005. The loss of the services of Mr. Baumhauer or members of our senior management and key associates or the inability to attract additional qualified personnel as needed could materially harm our business. We do not currently have key person life insurance for any of our officers or directors.

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We face indemnification liability from our predecessor companies

           In connection with the spin-off of DAKA International ("DAKA")in late 1997, we assumed certain contingent liabilities of DAKA and its subsidiary, Daka, Inc.("Daka"). Under our Post-Closing Covenant Agreement with DAKA, we are responsible for handling the defense of these claims, including the appeals. In March 2000, a former associate of Daka was awarded approximately $0.2 million in compensatory damages, $4.8 million in punitive damages and $0.3 million in legal fees in a jury trial based on the associate’s claim of negligent supervision and retaliation due to alleged conduct that occurred in 1996 at a former Daka food service location. On September 20, 2000, Daka filed a Notice of Appeal with the Court of Appeals for the District of Columbia. The Court of Appeals affirmed the award of compensatory damages in the amount of $187,500 and attorneys’ fees in the amount of $276,000. However, the Court of Appeals vacated the $4.8 million punitive damages award as constitutionally excessive and remanded the case to the trial court for re-determination of punitive damages in accordance with legal principles outlined in its opinion. In January 2004 we paid approximately $0.6 million for compensatory damages and attorney’s fees including interest. On remand, by Order dated May 26, 2004, the trial court awarded punitive damages in the amount of $937,500. We accrued a liability for the full amount of this award in the fourth quarter of fiscal 2004. On July 9, 2004, Daka filed a Notice of Appeal with the Court of Appeals for the District of Columbia and this matter is now pending in that court. In addition, on June 23, 2004, plaintiff’s counsel filed a motion for additional attorney’s fees in the amount of $375,000. Daka plans to vigorously oppose this motion and in the event the trial court grants the motion for attorneys’ fees in whole or in part, Daka plans to file a Notice of Appeal for the award of the legal fees. Depending on the timing and nature of the ruling by the Court of Appeals, we also could incur substantial additional legal expenses in pursuing Daka’s appeal and the ultimate resolution of this matter.

           We provide reserves in our financial statements for these and other matters. The approximate amounts of these reserves are reviewed periodically to determine their adequacy. Although we believe that our current reserves are adequate in light of our analyses of the potential outcomes of the matters, there can be no guarantees that we will not have to recognize additional charges as these matters are ultimately resolved. Any resulting charges could be significant.

Litigation could have a material adverse affect on our business

           We are subject to complaints or allegations from current and former or prospective associates from time to time. In addition, we are subject to complaints or litigation from guests alleging discrimination, illness, injury or other food quality, health or operational concerns. We may be adversely affected by publicity resulting from such allegations, regardless of whether such allegations are valid, whether we are liable, or whether such allegations involve one of our franchisees or licensees. A lawsuit or claim could result in an adverse decision or result that could have a material adverse affect on our business.

           We are also subject to state “dram shop” laws and regulations, which generally provide that a person injured by an intoxicated person may seek to recover damages from an establishment that wrongfully served alcohol to such person. While we carry liquor liability coverage as part of our existing comprehensive general liability insurance, we may still be subject to a judgment in excess of our insurance coverage and we may not be able to obtain or continue to maintain such insurance coverage at reasonable costs, or at all.

If we are unable to protect our intellectual property rights, it could reduce our ability to capitalize on our brand names

           Pursuant to a Master Agreement dated February 1, 1994, we acquired the “Champps,” “Champ’s” and “Champps Americana” service mark, trademark and trade name. Our business prospects depend, in part, on our ability to develop favorable consumer recognition of the Champps name and logo. Our trademarks could be infringed in ways that leave us without redress, such as by imitation. In addition, we rely on trade secrets and proprietary know-how, and we employ various methods to protect our concepts and recipes. However, such methods may not afford adequate protection and others could independently develop similar know-how or obtain access to our know-how, concepts and recipes. Moreover, we may face claims of infringement that could both interfere with our use of our proprietary know-how, concepts, recipes, trade secrets or trademarks or subject us to damages. Defending against such claims may be costly and, if unsuccessful, may prevent us from continuing to use such proprietary information in the future.

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           Although “Champps”, “Champ’s” and “Champps Americana” are federally registered trademarks, there are other restaurants and bars that operate under similar names. If these restaurants or bars are affected by negative publicity and consumers confuse these competitors with our Champps branded restaurants, our operating results could be adversely affected.

We are subject to extensive governmental regulations including, but not limited to, the sale and serving of alcoholic beverages and wages paid to our associates that could adversely affect our operations and our ability to expand and develop our restaurants

           The restaurant industry is subject to various federal, state and local governmental regulations. While at this time we have been able to obtain and maintain the necessary governmental licenses, permits and approvals, the failure to maintain these licenses, permits and approvals, including food and liquor licenses, could adversely affect our operating results. Difficulties or failure in obtaining the required licenses and approvals could delay or result in our decision to cancel the opening of new restaurants. Local authorities may suspend, revoke or deny renewal of our food and liquor licenses if they determine that our conduct or facilities do not meet applicable standards or if there are changes in regulations. Smoking bans in some locations could also have an adverse effect on our business.

           For fiscal 2004, approximately 28.2% of our restaurant food and beverage sales was attributable to the sale of alcoholic beverages, and we believe our ability to serve these beverages is an important factor in attracting guests. Alcoholic beverage control regulations require each of our restaurants to apply to a state authority and, in certain locations, county or municipal authorities for a license or permit to sell alcoholic beverages on the premises and to provide service for extended hours and on Sundays. Typically, licenses must be renewed annually and may be revoked or suspended for cause at any time, which could include sales to minors or intoxicated persons. Alcoholic beverage control regulations relate to numerous aspects of daily operations of our restaurants. The failure of a restaurant to obtain or retain liquor or food service licenses would adversely affect the restaurant’s operations.

           Various federal and state labor laws govern our relationship with our associates and affect our operating costs. These laws include minimum wage requirements, overtime pay, unemployment tax rates, workers’ compensation rates, and citizenship requirements. Additional government imposed increases in minimum wages, overtime pay, paid leave of absence and mandated health benefits, increased tax reporting and tax payment requirements for associates who receive gratuities or a reduction in the number of states that allow tips to be credited toward minimum wage requirements could harm our operating results. We are also subject to the ADA which may increase the cost of construction or remodeling.

           On June 17, 2002, the United States Supreme Court ruled that the Internal Revenue Service (“IRS”) can use aggregate tip estimates to ensure that the employer is paying FICA taxes on allegedly underreported tips. Under the ruling, the IRS does not need to examine individual associates’ records and it is permissible for the IRS to estimate the amount of cash tips given to associates based on tips included on credit card receipts.

           The reporting of tips is the responsibility of the associates receiving the tips. We encourage our associates to abide by the law and report 100% of the tips that they receive. While we believe our associates adequately report tips, we have implemented tip reporting policies and procedures that are in full compliance with the recommended IRS policies and procedures as defined in our Tip Reporting Alternative Commitment agreement that was executed by the Company and the IRS in fiscal 2003.

Our success depends on our ability to compete effectively in the restaurant industry

           The restaurant industry is highly competitive. Although we believe that our operating concept, quality of food, ambiance and overall dining experience differentiates us from competitors, we may be unable to compete effectively with new restaurant concepts or with larger, better-established competitors, which have substantially greater financial resources and operating histories than ours.

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We may not be able to generate sufficient future taxable income to fully utilize our income tax operating loss and credit carryforwards

           As of June 27, 2004, we had federal net operating loss (“NOL”) carryforwards of approximately $50.9 million and FICA tax credit carryforwards of approximately $5.6 million. The federal NOL’s expire at various times through 2020 and the FICA tip tax credits expire at various times through 2024. While we expect to fully utilize the carryforwards to reduce our income tax liabilities, future income may not be sufficient for full utilization of the carryforwards.

Our revenues may be adversely impacted by work stoppages, strikes or lock-outs associated with professional sports teams

           A portion of our revenues are generated from patrons who eat and drink at Champps while watching sports events. A work stoppage, strike or lock-out by any professional sports league would adversely impact our revenues.

Our financial results are subject to fluctuations due to the seasonal nature of our business

           Our sales fluctuate seasonally and therefore our quarterly results are not necessarily indicative of results that may be achieved for the full fiscal year. For fiscal years 2004 and 2003, our relative sales were highest in our second quarter (October through December), followed by our third quarter (January through March), then by our fourth quarter (April through June). Our first quarter (July through September) recorded the lowest relative sales for those years. Factors influencing sales variability in addition to those noted above include the frequency and popularity of sporting events, holidays (including which day of the week the holiday occurs) and weather.

Strategic alternatives

           From time to time, as a matter of standard business practice, our management investigates various strategic alternatives in an attempt to maximize shareholder value. These strategic alternatives include potential acquisitions, mergers with other companies and going private transactions. As of September 1, 2004, the Company has not entered into any definitive agreements relative to any strategic alternative that has been considered or brought before management. Should a material strategic alternative be presented that has the potential to maximize shareholder value, the board of directors would assign an independent committee to determine the merits of the proposed transaction and seek shareholder approval, if necessary.

Item 2.           Properties.

           The Company leases approximately 15,800 square feet of office space at its corporate headquarters in Littleton (Douglas County), Colorado, at an average annual rent of $348,000. The lease term for the office space ends October 2009. See “Item 1. Business – Operating Locations” for a listing of the Company’s owned and franchised restaurant locations, which is incorporated herein by reference.

Item 3.           Legal Proceedings.

           In connection with the spin-off of DAKA International, Inc. ("DAKA") in late 1997, we assumed certain contingent liabilities of DAKA and its subsidiary, Daka, Inc. Under our Post-Closing Covenant Agreement with DAKA, we are responsible for handling the defense of these claims, including the appeals. In March 2000, a former associate of Daka was awarded approximately $0.2 million in compensatory damages, $4.8 million in punitive damages and $0.3 million in legal fees in a jury trial (McCrae vs. Daka) based on the associate’s claim of negligent supervision and retaliation due to alleged conduct that occurred in 1996 at a former Daka food service location. On September 20, 2000, Daka filed a Notice of Appeal with the Court of Appeals for the District of Columbia. The Court of Appeals affirmed the award of compensatory damages in the amount of $187,500 and attorneys’ fees in the amount of $276,000. However, the Court of Appeals vacated the $4.8 million punitive damages award as constitutionally excessive and remanded the case to the trial court for redetermination of punitive damages in accordance with legal principles outlined in its opinion. In January 2004 we paid approximately $0.6 million for compensatory damages and attorney’s fees including interest. On remand, by Order dated May 26, 2004, the trial court awarded punitive damages in the amount of $937,500. We accrued a liability for the full amount of this award in the fourth quarter of fiscal 2004. On July 9, 2004, Daka filed a Notice of Appeal with the Court of Appeals for the District of Columbia and this matter is now pending in that court. In addition on June 23, 2004, plaintiff’s counsel filed a motion for additional attorney’s fees in the amount of $375,000. Daka plans to vigorously oppose this motion and in the event the trial court grants the motion for attorneys’ fees in whole or in part, Daka plans to file a Notice of Appeal for the award of the legal fees. We have not accrued for these additional attorney’s fees. Depending on the timing and nature of the ruling by the Court of Appeals, we also could incur substantial additional legal expenses in pursuing Daka’s appeal and the ultimate resolution of this matter.

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           Revisions to our estimated loss of $937,500 may be made in the future and will be reported in the period in which additional information is known. Based upon our analysis, and the advice of outside legal counsel, the Company believes that the ultimate outcome of this matter will not have any further material adverse effect on the Company’s consolidated financial position, results of operations or cash flows.

           In December 2001, the State of Florida proposed to assess subsidiaries of DAKA $2.4 million in unpaid state sales taxes, and an additional $2.9 million in penalties and interest through December 2001. We were contractually obligated to indemnify DAKA for this matter. In February 2004, we entered into a settlement agreement with the Florida Department of Revenue and paid $0.1 million in full settlement of this matter.

           We are engaged in various other actions arising in the ordinary course of business. We believe based on management’s analyses and the advice of outside counsel that the ultimate collective outcome of these other matters will not have a material adverse effect on our consolidated financial condition, results of operations or cash flows.

           As of June 27, 2004, we had an aggregate of approximately $1.0 million reserved for liabilities associated with predecessor companies, almost all of which related to the Daka associate judgment noted above. These amounts have been reserved as a result of the trial court award of punitive damages.

Item 4.           Submission of Matters to a Vote of Security Holders.

        There were no matters submitted by the Company to a vote of shareholders, through solicitation or proxies or otherwise, during the fourth quarter of the fiscal year for which this report is filed.

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PART II

Item 5.           Market for the Registrant’s Common Stock and Related Stockholder Matters.

           Our common stock is listed on the NASDAQ National Market (“Nasdaq”) under the symbol “CMPP.” The following table sets forth, for the periods indicated, the high and low sales prices per share for the common stock as reported by Nasdaq.

           On August 31, 2004, there were approximately 1,800 holders of record of the Company’s common stock. On September 1, 2004, the closing price of the Company’s common stock was $8.34 per share.

           We have never declared or paid dividends on our common stock. We currently intend to retain future earnings for use in the operation and expansion of our business and therefore do not anticipate paying cash dividends in the foreseeable future. Also, the Company’s credit arrangements restrict the amount of dividend payments or capital stock repurchases to a maximum amount of $7.5 million over a three year period beginning March 2004. Moreover, certain financial covenant ratios under the credit facilities require a minimum amount of tangible net worth, as defined in the related agreements.

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Item 6.           Selected Financial Data.

SELECTED FINANCIAL DATA

           The following table presents selected consolidated data from continuing operations and balance sheet data of the Company. The balance sheet data as of June 27, 2004, June 29, 2003, June 30, 2002, July 1, 2001 and July 2, 2000 and the statements of operations data for each of the five fiscal years in the period ended June 27, 2004 presented below are derived from our audited consolidated financial statements.

           Certain amounts have been reclassified for earlier periods to conform to the fiscal 2004 presentation. The reclassifications have no impact on net income or income per share.

           The selected consolidated financial data should be read in conjunction with the consolidated financial statements and related notes thereto of the Company and “Management’s Discussion and Analysis of Results of Operations and Financial Condition” included elsewhere in this Annual Report on Form 10-K.

(a) The fiscal years ending June 29, 2003 and July 1, 2001 had recorded income tax benefits of $13,201 and $7,893, respectively, primarily related to reversals of valuation allowances previously recorded on deferred tax assets.

Item 7.           Management's Discussion and Analysis of Results of Operations and Financial Condition.

Overview

           We are a restaurant company competing in the upscale casual market. As of June 27, 2004, we owned and operated 48, and franchised 12, upscale, full-service, casual dining restaurants under one of the following names: Champps Americana, Champps Restaurant or Champps Restaurant and Bar. We operate and franchise restaurants in 22 states with larger concentrations of restaurants in the upper Midwest, mid-Atlantic and Texas. Champps provides an extensive menu of approximately 90 items consisting of high quality ingredients, freshly prepared and served with exceptional service in an exciting environment through the use of videos, music, sports and promotions. Our restaurants generally are open seven days a week from 11:00 a.m. to 1:00 a.m. We serve our guests in the dining room and bar area during lunch, after work, during dinner and after dinner during our late night period.

           Since June 1999, we have positioned ourselves to increase profitability while embarking on a strategic expansion in major metropolitan areas throughout the United States. Prior to June 1999, we disposed of all non-Champps operating businesses and began to concentrate solely on the Champps concept. At June 1999, we owned 18 restaurants. In fiscal year 2000, we opened four restaurants and acquired two franchised restaurants. In fiscal 2001, fiscal 2002 and fiscal 2003, we opened four, six and seven restaurants, respectively. In fiscal 2004, we opened seven additional locations and had fully executed contracts for three additional locations expected to open in fiscal 2005. We have identified other potential sites and are negotiating contracts on additional sites for restaurants to be opened in fiscal 2005. We expect to open a total of six new company-operated restaurants in fiscal 2005.

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           Our new restaurants typically range in size from 7,500 square feet to 9,000 square feet. Historically since 2001, restaurants with a ground lease have required, on average, a net cash investment of approximately $1.8 million and average total invested capital of approximately $2.8 million per restaurant. Restaurants constructed with build-to-suit financing have required, on average, a net cash investment of $1.4 million and average total invested capital of approximately $4.7 million which includes land acquisition cost. Pre-opening expenses are expected to average approximately $360,000 per restaurant.

           Historically, our primary sources of liquidity for funding our operations and expansion have been net cash from operations, and standard restaurant financing methods, such as build-to-suit transactions, sale-leaseback transactions, mortgage facilities, notes payable, tenant improvement allowances and equipment financing. We recently secured a three-year $25.0 million revolving bank credit facility giving us greater financial flexibility and future interest expense savings. In that regard, certain of our higher interest rate notes payable and capital leases as well as certain operating leases were repaid in the third and fourth quarters of 2004 with excess cash and use of this bank facility, although we were subject to prepayment penalties and a write-off of related debt issuance costs.

           Because we continue to expand, the timing of revenues and expenses associated with opening new restaurants is expected to result in fluctuations in our quarterly and annual results. In addition, our results, and the results of the restaurant industry as a whole, may be adversely affected by changes in consumer tastes, discretionary spending priorities, national, regional and local economic conditions, demographic trends, consumer confidence in the economy, traffic patterns, weather conditions, employee availability, state and federal minimum wage requirements and the type, number and location of competing restaurants. Changes in any of these factors could adversely affect us and our financial results.

           The success of our business and our operating results are also dependent upon our ability to anticipate and react to changes in food and liquor costs and the mix between food and liquor revenues. Various factors beyond our control, such as adverse weather conditions, may affect food costs and increases in federal, state and local taxes may affect liquor costs. While we have been able to manage our exposure to the risk of increasing food and liquor costs in the past through certain purchasing practices, menu changes and price adjustments, there can be no assurance that we will be able to do so in the future or that changes in our sales mix or our overall buying power will not adversely affect our results of operations.

          Many food product costs have increased substantially in this recent fiscal year. The most notable products with higher costs that affected our operations included beef, dairy and chicken wings. We responded to these higher costs by raising prices on select menu items and adjusting recipes.

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           An important indicator of sales performance within the restaurant industry is comparable sales or same store sales. This indicator compares the revenue performance of our restaurants open for more than sixty-six weeks to the same restaurants in the prior year thereby eliminating the impact of new openings in comparing the operations of existing stores. Small changes in comparable sales can have a proportionally higher impact on operating margins because of the high degree of fixed costs associated with operating restaurants.

           Our comparable food sales have been positive for nine consecutive quarters and for 17 out of the last 20 quarters. However, at the same time, comparable alcohol sales have been negative for nine consecutive quarters. The following table provides our comparable sales percentage change by quarter versus the prior years’ comparable quarter for the last three fiscal years.

           We believe that alcohol sales have been impacted by our strategy to deemphasize our late night business beginning in the fourth quarter of fiscal 2002, the sluggish economy, competition, fluctuating consumer confidence, higher unemployment, decreases in discretionary income and a decline in overall on-premise alcohol sales throughout our industry. In June 2004 after reviewing competitor prices, we increased our alcohol prices.

           Our average weekly sales per restaurant has been decreasing over the last several years as our new stores have lower average weekly sales than our existing stores due in part to their reduced size.

           Food safety issues have received increased media attention during this past year. Two prominent issues have been the identification of green onions grown in farms in Mexico as the source of hepatitis and the first reported case of “mad cow” disease in the United States. We know of no known cases related to these food safety concerns affecting our restaurants. We have received assurances from our produce provider of green onions that their sources are safe. Also, we have reinforced to our restaurant operators procedures to follow for the safe food handling of green onions. To date, the “mad cow” disease issue has not been shown to influence the beef-eating habits of consumers per industry reports, although future cases could certainly influence our customers eating habits. The USDA and the beef industry have taken a number of actions to reduce the risk of “mad cow” diseased beef from entering consumer markets.

           As is fairly typical during most election years, proposals to increase minimum wage levels have once again surfaced at the federal level. In addition, certain states where we do business have legislative proposals to increase their minimum wage levels. While most of our kitchen staff are paid in excess of minimum wage levels and would not be affected by the proposals, our server and bar staff are generally paid the tipped minimum wage.

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           Recently, the popularity of the Atkins diet has resulted in many restaurant chains incorporating and promoting high-protein, low-carbohydrate items on their menus. We responded to this trend by including certain menu items labeled “carb conscious” in our specials section of the menu starting in the third quarter of fiscal 2004. We added a “carb conscious” section to our menu in June 2004.

           In the last fiscal year, two of our restaurants’ operations were negatively impacted by local ordinances prohibiting smoking in public places. These smoking bans are becoming more prevalent at both state and local levels. State mandated smoking bans have not historically impacted our operations while locality specific bans have negatively affected our operations due to the ability of smoking patrons to choose smoking venues in other close localities that do not have a smoking ban.

           We have been liable for two potentially significant loss contingencies related to a predecessor company (see Note 9 to our audited consolidated financial statements). Significant developments have occurred this last fiscal year in both items. In the McCrae vs. Daka matter, the Court of Appeals issued its decision in December 2003. The Court affirmed the award of compensatory damages in the amount of $187,500 and attorneys’ fees in the amount of $276,000. However, the Court vacated the $4.8 million punitive damages award as constitutionally excessive and remanded the case to the trial court for redetermination of punitive damages in accordance with legal principles outlined in its opinion. In January 2004, we paid approximately $0.6 million for these items including interest. In May 2004, the trial court made its redetermination and awarded $0.9 million in punitive damages to the plaintiff. We accrued this amount as a predecessor cost in the fourth quarter of fiscal 2004 even though we have appealed the punitive damage redetermination award. We have not accrued for $0.4 million of additional attorney’s fees sought by plaintiff’s counsel as we do not believe the liability is probable.

           The State of Florida proposed sales tax assessment including penalties and interest was settled in February 2004 for a payment of $0.1 million. Previously, the State of Florida had proposed to assess $2.4 million in unpaid state sales taxes, and an additional $2.9 million in penalties and interest as of December 2001.

Our financial results for the year ended June 27, 2004 included:

Critical accounting policies

           The preparation of our consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts and disclosures in the consolidated financial statements. The estimates and assumptions are evaluated on an on-going basis and are based on historical experience and on various other factors that are believed by us to be reasonable under the circumstances.

           Items significantly impacted by estimates and judgments include, but are not limited to, representations, warranties and indemnities provided in connection with the spin-off of DAKA International, Inc. in 1997 and the subsequent sale of the Fuddruckers business unit in 1998, self-insured risks relating to workers’ compensation and general liability claims and legal liabilities, the useful lives and recoverability of our long-lived assets such as property, equipment and intangibles, fair value attributed to assets and liabilities of acquired businesses, valuation of deferred tax assets and the recording of income tax expense.

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Loss contingencies and self-insurance reserves

           We maintain accrued liabilities and reserves relating to the resolution of certain contingent obligations and reserves for self-insurance. Significant contingencies include those related to litigation. We account for contingent obligations in accordance with Statement of Financial Accounting Standards (“SFAS”) No. 5, “Accounting for Contingencies,” as interpreted by FASB Interpretation No. 14 which requires that we assess each contingency to determine estimates of the degree of probability and range of possible settlement. Contingencies which are deemed to be probable and where the amount of such settlement is reasonably estimable are accrued in our financial statements. If only a range of loss can be determined, we accrue to the best estimate within that range; if none of the estimates within that range is better than another, we accrue to the low end of the range.

           We are self-insured for a significant portion of our employee health benefits, workers’ compensation and general liability programs. However, we maintain stop-loss coverage with third party insurers to limit our individual claim and total exposures under the programs. We estimate our accrued liability for the ultimate costs to close known claims including claims incurred but not yet reported to us as of the balance sheet date. Our recorded estimated liability for self-insurance is based on the insurance companies incurred loss estimates and management’s judgment, including assumptions and factors related to the frequency and severity of claims, our claims development history and our claims settlement practice.

           The assessment of loss contingencies and self-insurance reserves is a highly subjective process that requires judgments about future events. Contingencies are reviewed at least quarterly to determine the adequacy of the accruals and related financial statement disclosure. The ultimate settlement of loss contingencies and self-insurance reserves may differ significantly from amounts we have accrued in our financial statements.

Useful lives of property and equipment

           Land, buildings, leasehold improvements and equipment are recorded at cost less accumulated depreciation. These assets are depreciated using the straight-line method over the estimated useful lives of the assets. These estimates may produce materially different amounts of reported depreciation and amortization expense if different assumptions were used. As discussed further below, these judgments may also impact our need to recognize an impairment charge on the carrying amount of these assets.

Valuation of long-lived assets

           We evaluate the carrying value of long-lived assets including property, equipment and related identifiable intangible assets whenever events or changes in circumstances indicate that the carrying value may not be recoverable in accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.” Under SFAS No. 144, an assessment is made to determine if the sum of the expected future undiscounted cash flows from the use of the assets and eventual disposition is less than the carrying value.

If the sum of the expected undiscounted cash flows is less than the carrying value, an impairment loss is recognized based on fair value.

           We separately evaluate each individual restaurant for impairment. Generally, a restaurant is not evaluated for impairment until it has been open a full six quarters as the initial two quarters of operations are generally characterized by operating inefficiencies associated with start-up operations. We consider four consecutive quarters of negative cash flow or losses to indicate a potential for an individual restaurant to be impaired. We estimate the future cash flows for such potentially impaired restaurants utilizing such factors as restaurant sales trends, local economic conditions, demographics and competition, management plans and initiatives and other factors deemed appropriate in the circumstances.

           As of June 27, 2004, we had two restaurants open for at least six quarters which had negative cash flow in the last fiscal year. We currently have a plan to simplify these restaurants’ operations and thereby reduce costs which should significantly improve cash flow. These initiatives are to be instituted in the first half of fiscal 2005. We believe it is premature to record an impairment on the long-lived assets of these restaurants in light of our plans to improve the financial performance of these two restaurants.

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           Additionally, we had another two restaurants open for at least six quarters which had positive cash flow over the last fiscal year, but the level of such cash flows were not high enough to sufficiently cover the restaurants’ long-term asset values if such cash flows continue for the remainder of the restaurants’ lives. These two restaurants had negative local factors occurring in the last year that impacted their operations. We believe that the local factors will mitigate in the future and these restaurants’ cash flows will improve. Therefore, we believe recording an impairment is not appropriate at this time.

           Our forward-looking judgments and estimates concerning the above mentioned restaurants may not materialize. If such cash flows associated with any of these restaurants do not sufficiently improve, we would record an impairment for all or a portion of the respective restaurant’s long-lived assets depending on the fair value assigned to such assets. As of June 27, 2004, the long-lived assets value on these four restaurants totaled $7.3 million.

           We evaluate impairment of goodwill and other unidentifiable intangible assets in accordance with SFAS No. 142 “Goodwill and Other Intangible Assets.” Under the provisions of SFAS No. 142, we are required to assess impairment at least annually by means of a fair value-based test. At June 27, 2004, we evaluated our goodwill and determined that the goodwill was not impaired. The determination of fair value requires us to make certain assumptions and estimates related to our business and is highly subjective, and accordingly, actual amounts realized may differ significantly from our estimate.

Leases

           We lease most of our properties including our corporate office. We account for our leases under the provisions of SFAS No. 13 “Accounting for Leases” and subsequent amendments which require that leases be evaluated and classified as operating leases or capital leases for financial reporting purposes. In addition, we record the total rent payable during the lease term on a straight-line basis over the term of the lease and record the difference between the rent paid and the straight-line rent as a deferred rent liability. Lease incentive payments (“tenant improvement allowances”) received from landlords are recorded as deferred rent liabilities and are amortized on a straight-line basis over the lease term as a reduction in rent. Future authoritative changes to the methods of accounting for leases could have a material impact on the Company’s reported results of operations and financial position.

Valuation of deferred tax assets

           We recognize deferred tax assets and liabilities for the future tax consequences attributable to temporary differences between the carrying value for financial reporting purposes and the tax basis of assets and liabilities in accordance with SFAS No. 109, “Accounting for Income Taxes.” Deferred tax assets and liabilities are recorded using the enacted tax rates expected to apply to taxable income in the years in which such differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities, resulting from a change in tax rates, is recognized as a component of income tax expense (benefit) in the period that such change occurs. Net operating loss and other credit carryforwards, including FICA tip tax credits, are recorded as deferred tax assets. A valuation allowance is recorded for the tax benefit of the deferred tax assets not expected to be utilized based on projected future taxable income and the reversal of temporary differences. As of June 27, 2004, we had net deferred tax assets of $23.9 million. As a result of our improved profitability in recent years and our estimates of projected future taxable income, we believe that it is more likely than not that we will be able to realize these net deferred tax assets. As of June 27, 2004, we had federal net operating loss and FICA tip credit carryforwards of approximately $56.5 million, expiring at various dates through 2024.

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Income tax provision

           Certain components of our provision for income taxes are estimated. These estimates include, among other items, effective rates for local and state taxes, allowable tax credits for items such as FICA taxes paid on reported tip income, estimates related to depreciation and amortization allowable for tax purposes, and the tax deductibility of certain other items.

           Our estimates are based on the best available information at the time that we prepare the provision. We generally file our annual income tax returns many months after our fiscal year-end. Income tax returns are subject to audit by federal, state and local governments, generally years after the returns are filed. These returns could be subject to material adjustments or differing interpretations of the tax laws.

           Our accounting policies are more fully described in Note 1 to our consolidated financial statements included elsewhere in this Annual Report on Form 10-K and incorporated herein by reference.

Financial definitions

           Revenue — Our revenue is comprised of restaurant sales and net franchise royalties and fees. Restaurant sales are comprised almost entirely of food and beverage sales with less than 0.2% of the restaurant sales represented by sales of Champps’ merchandise and other revenue. In calculating our company-owned comparable restaurant sales, we include restaurants open at least 66 weeks. As of the end of fiscal 2004, 39 restaurants of our total 48 restaurants in operation were included in our comparable sales calculation.

           Restaurant Operating Costs — Product costs are composed primarily of food and beverage expenses. Labor costs include direct hourly and management wages, our restaurant associates wages during training, bonuses, workers’ compensation and payroll taxes and benefits for restaurant employees. Other operating expense includes restaurant supplies, marketing costs specifically related to the restaurants’ activities, utilities, repairs and maintenance, banking and credit card fees and other directly related restaurant costs. Occupancy costs include equipment operating leases, fixed rent, percentage rent, common area maintenance charges, general liability and property insurance and real estate and personal property taxes. Depreciation and amortization principally includes depreciation on capital expenditures for restaurants. Depreciation and amortization excludes corporate level depreciation and amortization which are included in general and administrative expense. Restaurant level operating profit is composed of restaurant sales less restaurant operating costs, which includes product costs, labor costs, other operating expense, occupancy and depreciation and amortization.

           General and Administrative Expenses — General and administrative expenses include all corporate and administrative functions that support existing operations and provide infrastructure to facilitate our future growth. Components include executive and management salaries, regional supervisory and staff salaries, bonuses and related associate payroll taxes and benefits, travel, information systems, communication expenses, corporate rent and related occupancy and operating costs, corporate depreciation and amortization and professional and consulting fees.

           Preopening and Other Items — Pre-opening expenses, which are expensed as incurred, consist of direct costs related to hiring and training the initial restaurant workforce and other expenses incurred prior to the opening of a new restaurant that are directly associated with opening the new restaurants. Other (income) expense, net generally consists of gains or losses on asset disposals primarily from asset replacements. Interest expense and income, net consists of interest expense on notes payable and capitalized lease obligations and amortization of loan fee costs partially offset by interest income earned on excess cash balances and interest capitalized as part of the construction process. Expenses related to predecessor companies consist of expenses for indemnity obligations related to the spin-off of DAKA International in 1997. Debt extinguishment costs consist of prepayment penalties and write-off of unamortized debt issuance costs associated with repayment of debt before scheduled maturity. Loss from discontinued operations consists of expenses for obligations of indemnity related to the Company’s sale of Fuddruckers in 1998.

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           Fiscal Calendar — We utilize a 52/53 week fiscal year ending on the Sunday closest to June 30 for financial reporting purposes. Fiscal years 2004, 2003 and 2002 each consisted of 52 weeks. Each quarter within those years consisted of 13 weeks. Our upcoming fiscal 2005 will consist of 53 weeks. The first quarter of fiscal 2005 will contain 14 weeks while the remaining quarters in the fiscal year will contain 13 weeks each.

Results of operations

The following table sets forth certain financial information for the Company (dollars in 000‘s).

(Continued)

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The following table reconciles these measures to the closest GAAP measure, income from operations (in 000‘s).

Fiscal 2004 compared to fiscal 2003

           Total revenue. Total revenue increased approximately $30.8 million, or 17.0%, to $211.5 million in fiscal 2004 from $180.7 million for the comparable prior year period primarily due to the opening of seven additional restaurants throughout fiscal 2004 and full year inclusion of the seven restaurants opened in fiscal 2003. Comparable restaurant sales increased 0.2% between years. In fiscal 2004, comparable food sales increased 1.2% while comparable alcohol sales decreased 2.3%. The average guest check in our dining room, excluding alcoholic beverages, was approximately $13.27 for fiscal 2004 versus $13.03 for fiscal 2003. During fiscal 2004, food sales and alcoholic beverage sales represented 71.8% and 28.2% of our total food and beverage sales, respectively. During fiscal 2003, food and alcoholic beverage sales represented 70.5% and 29.5% of our total food and beverage sales, respectively.

Restaurant operating expenses.

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           Restaurant level operating profit (Non-GAAP Measure.)Restaurant level operating profit increased approximately $3.3 million, or 17.4%, to $22.3 million in fiscal 2004 from $19.0 million in the prior year. Restaurant level operating profit as a percentage of restaurant sales increased modestly to 10.6% in fiscal 2004 from 10.5% in fiscal 2003. Reconciliation of restaurant level operating profit to the most comparable GAAP measure, income from operations, is contained in footnote 1 to the table under "Management’s Discussion and Analysis" – Results of Operations on page 28 and 29.

           General and administrative expenses.General and administrative expenses increased $0.9 million, or 9.1%, to $10.8 million in fiscal 2004 from $9.9 million in the comparable prior year period. The increase was the result of higher personnel costs to support growth, bonus expense and computer related costs. The increase was partially offset by lower hiring and recruiting expenses as well as $160,000 of expenses related to terminated projects and litigation settlement costs of $441,000 incurred in the prior year. General and administrative expenses as a percentage of total revenue decreased to 5.1% for fiscal 2004 from 5.5% in fiscal 2003 as a result of economies of scale associated with higher revenues.

           Pre-opening expenses. Pre-opening expenses were $1.9 million for fiscal 2004 and $3.1 million for the comparable prior year period. Pre-opening expenses as a percentage of revenue were 0.9% for fiscal 2004 and 1.7% for fiscal 2003. Pre-opening expenses have historically been approximately $0.4 million per location. We opened seven restaurants in both fiscal 2004 and fiscal 2003. The average restaurant pre-opening cost was significantly lower in 2004 versus 2003 because of the timing of openings, openings occurring in existing markets, and improved management of the expenses.

           Other (income) expense, net. Other expense of $0.1 million was recorded in fiscal 2004 compared to other expense of $0.3 million in fiscal 2003. The decrease in expense in 2004 was due to fewer losses on asset replacements and $0.1 of income recorded in fiscal 2004 related to certain warrant investments.

           Interest expense and income, net. Interest expense and income, net was approximately $2.1 million fiscal 2004 and $1.8 million in fiscal 2003. The increase resulted primarily from lower capitalized interest associated with lower levels of capital expenditures and higher interest expense associated with the issuance of $15.0 million of 5.5% convertible notes in December 2002 and $4.5 million of new borrowings in the first quarter of fiscal 2004. Partially offsetting the above was the prepayment of approximately $15.2 million and $5.2 million of debt and capital leases in fiscal 2004 and fiscal 2003, respectively, before scheduled maturity.

           Expenses related to predecessor companies. Expenses related to predecessor companies totaled $1.2 million for fiscal 2004 and $0.3 million for the prior year. The fiscal 2004 expenses relate to adjustments to the liabilities for the McCrae vs. Daka litigation as a result of the appellate decision and trial court redetermination (see Note 9 to the consolidated financial statements) and on-going litigation costs partially offset by a reduction in the liability for the State of Florida proposed tax assessment due to the favorable settlement of the proposed assessment.

           Debt extinguishment costs. Debt extinguishment costs of $0.6 million were incurred for fiscal 2004 as a result of the repayment of $15.2 million of debt and capital lease obligations before scheduled maturity. Debt extinguishment costs of $0.3 million were incurred in fiscal 2003 as a result of the prepayment of $5.2 million of debt before scheduled maturity.

           Income before income taxes. Income before income taxes increased $2.3 million, or 59.0%, to $6.2 million for fiscal 2004 from $3.9 million in the comparable prior year period for the reasons described herein.

           Income tax expense. For fiscal 2004, we recorded an income tax expense of $1.2 million, or an effective income tax rate of 19.7%. Although we recognized an income tax expense of 19.7%, we anticipate paying income taxes at an effective rate of only 6% because of our ability to utilize net operating loss carryforwards to offset taxable federal income. In fiscal 2003, we recorded an income tax benefit of $13.2 million reflecting the $15.2 million decrease in deferred tax asset valuation allowance.

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Fiscal 2003 compared to fiscal 2002

           Total revenue. Total revenue increased approximately $22.2 million, or 14.0%, to $180.7 million for fiscal 2003 from $158.5 million for the comparable prior period. The increase was primarily due to the full-year operation of six additional restaurants opened in fiscal 2002, seven additional restaurants opened in fiscal 2003 and menu price increases having an impact on sales of approximately 1%. This increase was partially offset by a decrease in comparable restaurant sales of 1.6%. Comparable food sales increased 1.0% due largely to increases in customer traffic partially offset by a lower guest check average; however, comparable alcohol sales decreased 6.8%. The comparable alcohol sales decrease was due, in part, to a strategic de-emphasis of the Company’s late night promotions as the promotions are costly and can alienate dinner guests. Sales in the January through March 2003 period were also negatively affected by severe weather primarily in Ohio, Indiana, the mid-Atlantic and Colorado markets. Furthermore, sales were negatively affected by weakening consumer confidence and the impact of the war in Iraq. During fiscal 2003, food sales and alcoholic beverage sales represented 70.5% and 29.5% of our total food and beverage sales, respectively. During fiscal 2002, food sales and alcoholic beverage sales represented 67.8% and 32.2% of our total food and beverage sales, respectively.

Restaurant operating expenses.

          Restaurant level operating profit (Non-GAAP Measure.) Restaurant level operating profit increased approximately $1.0 million, or 5.6%, to $19.0 million for fiscal 2003 compared with $18.0 million for the comparable prior period. Restaurant level operating profit as a percentage of restaurant sales decreased to 10.5% for fiscal 2003 from 11.4% for the comparable prior period. The decrease was due to higher restaurant expenses as a percent of sales associated with the opening of seven new restaurants in fiscal 2003. The income generated from new restaurants is typically lower during the first four months of operation compared to an existing restaurant. In addition, lower average restaurant sales resulted in fixed expenses being a higher percentage of revenues during fiscal 2003. Reconciliation of restaurant level operating profit to the most comparable GAAP measure, income from operations, is contained in footnote 1 to the table under "Management’s Discussion and Analysis" – Results of Operations on page 28 and 29.

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           General and administrative expense. General and administrative expense increased $1.3 million, or 15.1%, to $9.9 million for fiscal 2003 from $8.6 million for the comparable prior period. The increase was largely due to a $180,000 reversal of bad debt from a franchisee in fiscal 2002, approximately $441,000 of litigation settlement costs, $160,000 of expenses related to terminated projects and higher computer expense due to the new restaurants and increased professional fees in fiscal 2003. General and administrative expense as a percentage of total revenue increased to 5.5% for fiscal 2003 from 5.4% for the comparable prior period.

           Pre-opening expense. Pre-opening expense increased $0.5 million to $3.1 million during fiscal 2003 from $2.6 million during the comparable prior period. We opened seven new restaurants in fiscal 2003 and opened six new restaurants for the comparable prior period. Although pre-opening expense is incurred prior to the opening of a new restaurant, we continue to incur pre-opening expense for trainers up to two weeks after a new restaurant opens. Pre-opening expense has historically been approximately $0.4 million per location.

           Expenses related to predecessor companies and loss from discontinued operations. Expenses related to the Daka spin-off and Fuddruckers sale decreased $0.2 million to $0.3 million from $0.5 million. The decrease is primarily the result of the length of time since these transactions were completed in 1997 and 1998.

           Interest expense and income, net. Interest expense and income, net increased $0.2 million to $1.8 million from $1.6 million in the prior period primarily due to interest expense on additional debt. As of June 29, 2003, we had a total of $28.6 million in notes payable and capitalized leases versus $21.8 million as of June 30, 2002.

           Debt extinguishment costs. Debt extinguishment costs of $0.3 million were incurred in fiscal 2003 as a result of the repayment of $5.2 million of notes payable before their scheduled maturity. No debt extinguishment costs were incurred in the prior fiscal year.

           Other (income) expense. The Company recorded other expense of $0.3 million in fiscal 2003 compared to a nominal amount in the prior fiscal year. The increase in expense resulted from losses on asset disposals from asset retirements.

           Income before provision for income taxes. Income before provision for income taxes decreased $1.4 million, or 26.4%, to $3.9 million from $5.3 million for the comparable prior period.

           Provision for income tax benefit/expense. For fiscal 2003, we recognized an income tax benefit of $13.2 million compared to income tax expense of $0.2 million in fiscal 2002. The income tax benefit in fiscal 2003 was primarily the result of a reversal of the remaining valuation allowance on the Company’s deferred tax assets associated with net operating loss carryforwards. The reversal of the valuation allowance resulted from a determination by management that the net operating loss carryforwards are not limited under tax law and the Company’s future taxable income will, more likely than not, be sufficient to realize the carryforwards before expiration.

Liquidity and capital resources

           As of June 27, 2004, our unrestricted cash balance was $1.4 million and our restricted cash balance was $0.1 million. The restricted cash balance primarily serves as collateral for performance obligations. Our cash balance and working capital needs are generally low, as sales are made for cash or through credit cards that are quickly converted to cash, purchases of food and supplies and other operating expenses are generally paid within 30 to 60 days after receipt of invoices and labor costs are paid bi-weekly. The timing of our sales collections and vendor and labor payments are consistent with other companies engaged in the restaurant industry. Our net working capital decreased by $4.0 million in fiscal 2004 primarily as a result of using excess cash to reduce debt balances.

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           For fiscal years 2004, 2003 and 2002, we generated cash flow from operating activities of $17.1 million, $10.1 million and $8.9 million, respectively. The increased cash flow from operating activities was due largely to our improved profitability and, to a smaller extent, due to increased cash from working capital changes. Our operating cash flow is enhanced by our ability to utilize net operating loss carryforwards and other tax credits to offset our federal income tax liability. At June 27, 2004, we had $56.5 million of such carryforwards and credits available through 2024 to offset federal taxes. We expect to fully utilize these carryforwards and credits in the next seven to ten years.

           A significant portion, if not all, of our cash flow generated from operating activities in each of the last three fiscal years has been invested in capital expenditures, the majority of which was for the construction of new stores. We opened seven new restaurants in both fiscal 2004 and fiscal 2003 and six new restaurants in fiscal 2002. The following table, in thousands, details our capital expenditures for the last three fiscal years along with funding provided from tenant improvement allowances. Tenant improvement allowances are reimbursements received from certain of our landlords for a portion of initial construction expenditures.

           Total capital expenditures for fiscal year 2005 are anticipated to be approximately $20.0 million, before tenant improvement allowances. These expenditures will primarily be for the construction of six new restaurants expected to open in fiscal 2005, construction for certain restaurants expected to open in early fiscal 2006 and for upgrades to existing restaurants. We review our capital expenditures budget on a monthly basis and amounts are subject to change. We are anticipating receiving cash for tenant improvement allowances of approximately $4.8 million for fiscal 2005.

           In January, 2003, we entered into an agreement with AEI Fund Management, Inc. ("AEI") for the development and sale/leaseback of up to seven new restaurants with an additional funding commitment of $24.5 million. At June 27, 2004, we had completed the construction of three restaurants under this commitment located in Houston, Texas, Cincinnati, Ohio and Orland Park, Illinois. The agreement expires the earlier of November 30, 2005 or upon AEI’s acceptance or rejection of seven total restaurant sites. The funding of this build-to-suit facility is subject to various pre-closing conditions. For additional information on our agreement with AEI, please refer to the information provided under Note 6 to the accompanying consolidated financial statements, which information is incorporated by reference herein.

           We supplemented our operating cash flows over the last three years through various financing arrangements. In September 2002, we entered into a $5.0 million five-year term loan facility with General Electric Capital. This facility was collateralized by equipment. We borrowed $0.5 million of the funds in fiscal 2003 and the $4.5 million balance during the first quarter of fiscal 2004. These loans were repaid in fiscal 2004.

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          In fiscal 2003, we received $15.0 million of gross proceeds from the issuance of 5.5% convertible subordinated notes (“notes”) and warrants. Approximately $1.4 million of issuance costs were incurred relative to the notes. The notes are due December 2007 and require interest only payments semi-annually.

           Also in fiscal 2003, we received approximately $5.0 million from the exercise of stock options. Most of the stock option exercises occurred as a result of a 10b5-1 stock trading plan under which our chief executive officer exercised 1.0 million stock options before the options expired at the end of fiscal 2003. The exercise price of the options and certain tax withholding liabilities were paid through tendering almost half of the exercised shares with a fair value of $3.6 million.

           In fiscal 2002, we entered into two term loans totaling $5.0 million with General Electric Capital collateralized by equipment. As of June 27, 2004, we had approximately $1.8 million outstanding under these term loans. These loans bear interest at the 30-day commercial paper rate, plus 3.75% and mature between December 2006 and February 2007. Also in fiscal 2002, we received $1.8 million of proceeds from equipment capital lease transactions.

           In fiscal 2004 and fiscal 2003, we elected to prepay $15.2 million and $5.2 million, respectively, of our existing debt to reduce our annual interest costs. The funds to prepay the debt came from excess cash, the $15.0 million issuance of convertible notes in fiscal 2003 and borrowings under the new $25.0 million senior secured bank credit facility obtained in fiscal 2004. Prepayment penalties and a write-off of unamortized deferred financing fees totaling $587,000 and $290,000 were recorded in fiscal 2004 and fiscal 2003, respectively, as a result of prepaying the debt before its scheduled maturity.

           In March 2004, we obtained a three-year $25.0 million senior secured credit facility with a new lender, LaSalle Bank. We used a portion of the facility to refinance certain of our existing debt and the facility may also be used to support growth and general working capital needs and provide up to $5.0 million for the issuance of letters of credit. The facility is secured by a blanket lien on all personal assets and real property of the Company. Borrowings under the facility will bear interest depending on a total funded debt to EBITDA ratio and will range from prime to prime plus 50 basis points or, if elected, LIBOR plus 200 to 300 basis points. We paid an up-front fee of $188,000 and are required to pay an annual unused commitment fee of 37.5 basis points to 50 basis points. Outstanding borrowings under the facility may be converted to a five-year term loan if the ratio of senior debt to EBITDA exceeds specified levels. The facility requires the Company to maintain a minimum fixed charge coverage ratio and tangible net worth level and not exceed thresholds for total funded debt to EBITDA and total senior debt to EBITDA ratios. Capitalized terms refer to defined terms in the senior secured credit facility. The facility limits the opening of new restaurants to a maximum of twenty-four over a three year period and also limits the amount of dividends and/or stock repurchases. As of June 27, 2004, the Company had $2.5 million of outstanding borrowings under this facility and had placed letters of credit of $1.3 million under the facility with $19.4 million available for additional borrowing. As of June 27, 2004, we were in compliance with all debt covenants and financial ratios.

           At June 27, 2004, we had a bank credit facility with First National Bank of Colorado under which we could borrow up to $2.0 million to provide short-term working capital and to support the issuance of letters of credit. As of June 27, 2004, we had no outstanding borrowings but had placed letters of credit of $1.8 million under this working capital facility. The Company has no intent to extend this facility past its January 2005 expiration in light of its new $25.0 million credit facility.

           For additional information regarding our material debt instruments, including our $15.0 million convertible subordinated notes and related warrants, $25.0 million senior secured credit facility with LaSalle Bank, and our $2.0 million bank credit facility with First National Bank of Colorado, please refer to the information provided under Note 7– "Long-term Debt", to the accompanying consolidated financial statements, which information is incorporated by reference herein.

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           There will be cash payments during the next twelve months associated with predecessor company activities. Such cash payments will include settlements and on-going legal costs. We expect the total cash payments for these liabilities to be approximately $1.0 million, but the amounts could be higher depending on the final outcome of litigation. . For additional information regarding our commitments and contingencies, including our payments associated with our predecessor company activities, please refer to the information provided under Note 9 – "Commitments and Contingencies," to the accompanying consolidated financial statements, which information is incorporated by reference herein.During fiscal 2004, 2003 and 2002, we expended approximately $0.8 million, $1.0 million and $1.4 million related to the predecessor company matters.

           We believe our cash flow from operations, together with anticipated tenant improvement allowances of approximately $4.8 million and funds available under our $25.0 million credit facility ($19.4 million available at June 27, 2004) will be sufficient to fund our operations, debt repayment and expansion at least through the end of fiscal 2005. However, changes in our operating plans, acceleration of our expansion plans, lower than anticipated sales, increased expenses or other events, including those described in “Item 1 Business-Risk Factors,” may cause us to seek additional debt or equity financing on an accelerated basis. Additional financing may not be available on acceptable terms, or at all, and our failure to raise capital when needed could negatively impact our growth plans and our financial condition and results of operations. Any additional equity financing may be dilutive to the holders of our common stock and debt financing, if available, may involve significant cash payment obligations and covenants and/or financial ratios that restrict our ability to operate and grow our business.

Contractual obligations and commitments

Payments, including interest, due by period as of June 27, 2004 (in 000's)

           We are obligated under non-cancelable operating leases for our headquarters and all but one of our restaurants. The fixed terms of the restaurant leases range up to 20 years and generally contain multiple renewal options for various periods ranging from five to 20 years. Our restaurant leases also contain provisions that require additional rent payments based on sales performance and the payment of common area maintenance charges and real estate taxes. Amounts in this table do not reflect any of these additional amounts.

           Our long-term debt is principally comprised of a $15.0 million issuance of 5.5% convertible notes due December 2007, unless otherwise earlier converted into our common stock. Additionally, at June 27, 2004, we had term debt balances of $1.8 million and $2.5 million of loans outstanding under our revolving credit facility. The credit facility borrowings mature in March 2007.

           We have letters of credit outstanding to guarantee performance under insurance contracts and to secure other arrangements. The letters of credit are irrevocable and have one-year renewable terms.

           We have commitments under contracts for the purchase of property and equipment and for the construction of buildings under build-to-suit arrangements or otherwise. Portions of such contracts not completed at June 27, 2004 as stated above were not reflected as assets or liabilities in our consolidated financial statements.

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Impact of inflation

           The primary inflationary factors affecting our operations are food, alcoholic beverages and labor costs. A large number of our restaurant associates are paid at rates based on the applicable minimum wage, and increases in the minimum wage directly affect our labor costs. Many of our leases require us to pay property taxes, maintenance, repairs, insurance and utilities, all of which are generally subject to inflationary increases. We believe inflation has not had a material impact on our results of operations in recent years. We cannot predict whether inflation will have an impact on our results of operations in the future.

Seansonality

           Our sales fluctuate seasonally and therefore our quarterly results are not necessarily indicative of results that may be achieved for the full fiscal year. For fiscal years 2004 and 2003, our relative sales were highest in our second quarter (October through December), followed by our third quarter (January through March), then by our fourth quarter (April through June). Our first quarter (July through September) recorded the lowest relative sales for those years. Factors influencing sales variability in addition to those noted above include the frequency and popularity of sporting events, holidays (including which day of the week the holiday occurs) and weather.

Item 7A.           Quantitative and Qualitative Market Risk Disclosures

           We are exposed to market risk primarily from changes in interest rates and changes in commodity prices.

           At June 27, 2004, we were exposed to interest rate fluctuations on approximately $4.3 million of notes payable and bank credit facility borrowings carrying variable interest rates. A hypothetical one hundred basis point increase in interest rates for these notes payable would increase our annual interest expense by approximately $43,000.

           We have also been subject to interest rate market risk for short-term invested cash and cash equivalents. The principal of such invested funds would not be subject to fluctuating value because of their highly liquid short-term nature. As of June 27, 2004, we had no such funds invested in short-term maturing investments.

           Many of the ingredients purchased for use in the products sold to our guests are subject to unpredictable price volatility outside of our control. We try to manage this risk by entering into selective short-term agreements for the products we use most extensively. Also, we believe that our commodity cost risk is diversified as many of our food products are available from several sources and we have the ability to modify product recipes or vary our menu items offered. Historically, we have also been able to increase certain menu prices in response to food commodity price increases and believe the opportunity may exist in the future. To compensate for a hypothetical price increase of 10% for food and beverages, we would need to increase prices charged to our guests by an average of approximately 2.8%. We have not used financial instruments to hedge our commodity product prices.

Item 8.           Financial Statements and Supplementary Data.

           The information required under this Item 8 is set forth on pages F-1 through F-27 of this Report.

Item 9.           Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

          None.

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Item 9A.           Controls and Procedures.

           We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed by us in the reports that we file or submit to the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified by the Commission’s rules and forms, and that information is accumulated and communicated to our management, including our chief executive officer and our chief financial officer, as appropriate to allow timely decisions regarding required disclosure.

           Under the supervision and with the participation of our management, including our chief executive officer and our chief financial officer, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 (the “Exchange Act”)) as of June 27, 2004, the end of the period covered by this report. Based on that evaluation, the chief executive officer and chief financial officer concluded that our disclosure controls and procedures were effective as of June 27, 2004.

           During the quarter ended June 27, 2004, there was no change in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART III

Item 10.           Directors and Executive Officers of the Registrant.

           Part of the information required by this Item is incorporated herein by reference to the information from the section captioned “Election of Directors” contained in the Proxy Statement for the Company's Annual Shareholder's Meeting to be held on or about December 1, 2004 and to be filed with the Securities and Exchange Commission within 120 days of June 27, 2004.

Our executive officers include the following persons:

All executive officers hold office at the discretion of the board of directors.

           William H. Baumhauer. Mr. Baumhauer is our chairman of the board and has been an officer of Champps since June 1999 and a director since August 1999. Mr. Baumhauer also held these positions with our predecessors or us from September 1988 until July 24, 1998, when he left the Company to serve as president and chief operating officer of Planet Hollywood International, Inc., a position he held until his return to Champps in June 1999.

           Donnie N. Lamb. Mr. Lamb has served as our senior vice president and chief operating officer since August 2002. Mr. Lamb started his employment with the Company in August 1996. He served as a director of operations from August 1996 through August 1999 when he was promoted to vice president – operations. Prior to August 1996, Mr. Lamb held multi-unit management positions with Houlihan’s and Ruby Tuesday, Inc.

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           Frederick J. Dreibholz. Mr. Dreibholz has served as our vice president, chief financial officer and treasurer since October 1999. From November 1998 to October 1999, Mr. Dreibholz acted as a consultant to numerous restaurant and food service clients in South Florida and New York City. From April 1998 to November 1998, he served as chief financial officer of Unique Restaurant Concepts, Inc. and Sforza Enterprises, Inc. From November 1987 to April 1998, he served as chief financial officer of Flik International Corp.

           Donna L. Depoian. Ms. Depoian has served as our vice president, general counsel and secretary since May 1998. From February 1998 to May 1998, Ms. Depoian served as our acting general counsel and assistant secretary and from July 1997 to February 1998, as our corporate counsel and assistant secretary. From April 1994 to July 1997, Ms. Depoian served as corporate counsel and assistant secretary for DAKA International, Inc.

           David J. Miller. Mr. Miller has served as our vice president of construction and design since October 1999. He started with the Company in May 1996 and served in the capacities of construction manager until October 1997 when he was promoted to corporate director of construction.

Item 11.           Executive Compensation.

           The information required by this Item is incorporated by reference to the section captioned “Executive Compensation” contained in the Proxy Statement for the Company's Annual Shareholder's Meeting to be held on or about December 1, 2004 and to be filed with the Securities and Exchange Commission within 120 days of June 27, 2004.

Item 12.           Security Ownership of Certain Beneficial Owners and Management.

           The information required by this Item is incorporated by reference to the section captioned “Principal and Management Shareholders” contained in the Proxy Statement for the Company's Annual Shareholder's Meeting to be held on or about December 1, 2004 and to be filed with the Securities and Exchange Commission within 120 days of June 27, 2004.

Item 13.           Certain Relationships And Related Transactions.

           The information required by this Item is incorporated by reference from the sections captioned “Certain Relationships and Related Transactions” contained in the Proxy Statement for the Company's Annual Shareholder's Meeting to be held on or about December 1, 2004 and to be filed with the Securities and Exchange Commission within 120 days of June 27, 2004.

Item 14.           Independent Registered Public Accountant and Fees.

           The information required by this Item is incorporated by reference from the section captioned “Audit and Other Fees” contained in the Proxy Statement for the Company's Annual Shareholder's Meeting to be held on or about December 1, 2004 and to be filed with the Securities and Exchange Commission within 120 days of June 27, 2004.

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PART IV

Item 15.           Exhibits, Financial Statement Schedules and Reports on Form 8-K.

(a)     The following are being filed as part of this Annual Report on Form 10-K.

1. Financial Statements:

2. Financial Statement Schedules:

3. Exhibits:

39

40

41

*  Identifies each management contract or compensatory plan or arrangement.
** Filed herewith.

(b)      Reports on Form 8-K

           Current reports on Form 8-K filed during the fourth quarter ended June 27, 2004:

(c)      Financial Statement Schedules:

           There are no Financial Statement Schedules required to be filed. Information required by Article 12 of Regulation S-X with respect to Valuation and Qualifying Accounts has been included in the Notes to the Consolidated Financial Statements.

Exhibit Index:

42

43

44

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

CHAMPPS ENTERTAINMENT, INC.

(Registrant)

By: /s/ William H. Baumhauer
William H. Baumhauer
Chairman of the Board, President
and Chief Executive Officer
(Principal Executive Officer)

Date: September 3, 2004

By: /s/ Frederick J. Dreibholz
Frederick J. Dreibholz
Vice President, Chief Financial
Officer and Treasurer
(Principal Financial and Accounting Officer)

Date: September 3, 2004

Pursuant to the requirement of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant, and in the capacities and on the date indicated.

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Report of Independent Registered Public Accounting Firm

The Board of Directors and Shareholders
Champps Entertainment, Inc.:

           We have audited the accompanying consolidated balance sheets of Champps Entertainment, Inc. (the “Company”) and subsidiaries as of June 27, 2004 and June 29, 2003, and the related consolidated statements of operations, changes in shareholders’ equity and comprehensive income, and cash flows for each of the years in the three-year period ended June 27, 2004. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

           We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

           In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Champps Entertainment, Inc. and subsidiaries as of June 27, 2004 and June 29, 2003, and the results of their operations and their cash flows for each of the years in the three-year period ended June 27, 2004, in conformity with U.S. generally accepted accounting principles.

/s/ KPMG LLP

Denver, Colorado
August 18, 2004

F-1

CHAMPPS ENTERTAINMENT, INC.
CONSOLIDATED BALANCE SHEETS
As of June 27, 2004 and June 29, 2003
(In thousands, except share data)

See accompanying notes to consolidated financial statements.

F-2

CHAMPPS ENTERTAINMENT, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
Fiscal Years Ended June 27, 2004, June 29, 2003 and June 30, 2002
(In thousands, except per share data)